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Informality in the Indian Labour Market: An Analysis of Forms and Determinants


Defined as any employment which is not accompanied by social security benefits, informal employment has persisted in India’s labour market, manifested predominantly as self-employment or employment in informal enterprises. In recent years, informal employment within formal enterprises has emerged as a prominent employment arrangement. Juxtaposing job attributes alongside enterprise characteristics based on internationally accepted conceptual framework, the paper contrasts broad trends across forms of informal employment by region, industry and gender. Using a multinomial probit model with correction for selection bias, a comparative examination of the determinants of employment choice reveals that informal workers in formal enterprises are more educated and experienced than their counterparts in informal enterprises. Notably, highly educated individuals and those in high-skill occupations were more likely to secure informal employment in formal sector, rather than formal employment, with the impact exacerbated amongst women. In addition, the results suggest greater inflexibility in informal work in formal enterprises. The analysis in this paper challenges conventional notions of the informal labour force as being comprised of the very old or very young, illiterate or under-educated individuals.

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Fig. 1

Source: Author’s computations using NSS Employment Unemployment Surveys

Fig. 2

Source: Author’s computations using unit-level data from relevant rounds of NSS EUS

Fig. 3

Source: Author’s computations using unit-level data from relevant rounds of NSS EUS

Fig. 4

Source: Author’s computations using NSS EUS Rounds

Fig. 5

Source: Author’s computations using NSS EUS Rounds


  1. This is a purely empirical conclusion for the purpose of facilitating analysis. It is not to be taken to mean that PF is ideal/only necessary form of social security. Indeed, other provisions are necessary but the analysis suggests that provision of PF is the most basic form of support being provided. Data limitations also justify the use of this indicator as described later.

  2. Age splines are introduced rather than retaining age as a continuous variable. This was done since there was found to be high multicollinearity between age and its squared term.

  3. Educational splines are introduced to differentiate the marginal impact of each level of education.

  4. For the smaller states, not all employment forms were represented in the sample and hence they have been excluded.

  5. The marginal effects for agricultural labourers are not shown here since they are not the focus of this analysis.


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This work was undertaken as a part of the author’s Ph.D. at the Institute for Social and Economic Change, Bengaluru. The author is grateful to her PhD supervisor Prof. M. R. Narayana for his guidance and valuable suggestions. She gratefully acknowledges the Indian Council for Social Science Research (ICSSR) for the fellowship received during the course of her PhD. The author gratefully acknowledges comments and feedback received on an earlier draft of this paper presented at the 58th Annual Conference of the Indian Society of Labour Economists. Financial assistance received from Sri Ratan Tata Trust Fund which enabled her participation at the above Conference is gratefully acknowledged. Parts of this paper draws from the author’s ISEC Working Paper Series Paper No. 363.

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Correspondence to Rosa Abraham.

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This work was done during the author’s doctoral studies at the Institute for Social and Economic Change, Bengaluru.



See Table 6.

Table 6 Summary statistics of variables in multinomial probit

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Abraham, R. Informality in the Indian Labour Market: An Analysis of Forms and Determinants. Ind. J. Labour Econ. 60, 191–215 (2017).

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